Negotiating Payment Terms

You receive a bill from your vendor, and the bottom says, “Payment due upon receipt.” Is it really due? And how can you set up different terms?

The payment terms you have with a vendor should be clearly established at the time you enlist their services or buy their product. If this is an on-going vendor, create a contract that spells out the terms.

What is favorable to the vendor is not necessarily favorable to you. Here are things to consider:

• Keeping your money in the bank as long as possible
• Reducing the load on the accounting department by initiating pay cycles once a week, or once a month
• Spreading large payments out over a period of time without incurring any overhead fees.

To negotiate favorable terms, remember that you have the bargaining power. The vendor wants your business. In most cases, you can find another vendor, so don’t feel that you can’t negotiate.

One way to set the terms is simply defacto. Pay the bill when it is convenient for you to do so, regardless of what the bill says. As long as you are not paying late, then you can create the payment cycle to match your accounting and financial needs. There is no need to explain anything. This will work for simple payments.

For large payments where you would like to spread the payment out over time, there are two ways to negotiate. First, you can specify the payments match deliverables. Second, you can simply say that you need x amount of time to pay, and ask the vendor to agree to this. In this case, it is important to put the payment schedule in writing, as often the accounting department will assume you are paying late, unless they know you have special terms.

Finally, if you want to pay bills only once a month, on the first of the month, for example, inform every vendor that you will be paying at that rate, no matter when the bill comes in.

If you are more interested in cutting your expenses than in streamlining accounting, you can also ask for a discount on the invoice for early payment. However, this may end up costing you, as you then are on the hook for paying as soon as the bill comes in, rather than being able to control your payment cycle.